Investment Banking: Introduction to Structured Products Training Course

Session 1 – Structured Products

• Definition and nature of a structured product
• Classification of structured products
  • Asset-backed securities
  • Collateralised debt obligations
  • Collateralised mortgage obligations
• The function of the special purpose vehicle
• Methodologies for pricing structured products
• Identification of primary risks
• Accounting treatment for structured products
• Practical approaches to pricing a structured product

Session 2: Interest Rate Structures

• Embedded options and swaps
• Reverse floaters
• Leveraged swap-linked notes
• Bonds tied to indices other than Libor
• Extendible and cancellable swaps
• Embedded swaptions

Session 3 – Options Contracts

• Fundamentals of options
• Key options terminology
• Exchange-traded versus OTC markets
• Understanding option premiums
• Confirmation and settlement procedures
• The role of volatility
• Option pricing models –
  • Binomial model
  • Black-Scholes model
  • Alternative methodologies
• The significance of the yield curve

Session 4 – Swaps Contracts

• Overview of swaps
• Definitions and types of swaps
• Quality spread differential
• Interest rate swaps
• Currency swaps
• Pricing interest rate swaps
• Valuation of swaps
• Model risk and the critical nature of pricing feeds
• Confirmation and settlement processes
• Counterparty credit risk
• Collateral requirements and management

Session 5 – Introduction to Derivatives

• Defining a derivative
• Common concerns regarding derivatives
• Core concepts
• Arbitrage and the original intent of derivatives – the mutual coincidence of wants
• Advantages and applications of derivatives
• Hedging strategies and trading activities

Session 6 – Foreign Exchange

• Banking book versus trading book
• Standard market conventions
• Vocabulary of the foreign exchange market
• The mechanics of foreign exchange trading
• Electronic versus telephone trading
• Controls within the dealing room
• Standard currency terminology

Session 7 – Forward Transactions

• Introduction to forward contracts
• Objectives of forward contracts
• Pricing forward contracts and the centrality of Libor
• Documentation standards for forward contracts
• Overview of the ISDA framework
• Confirming and settling forward transactions

Session 8 – Futures Contracts

• Introduction to futures contracts
• The role of the futures exchange
• Characteristics of futures contracts
• Functions in trading
• Pricing mechanisms for futures contracts
• Hedging strategies using futures
• The importance of margin accounting
• Confirmation and settlement

Session 9: Equity Swaps

• Objectives of fund management
• Utilizing swaps linked to equity price indices
• Illustrative cash flow structures for an equity swap
• Total return swaps and other credit derivatives

Session 10 – Practical Challenges and Failures

• Scenario modelling and its application to derivatives
• Case study: Bankers Trust
• Case study: Barings
• Case study: Allfirst
• Case study: LTCM
• Case study: Enron

Session 11 – Introduction to Advanced Topics

• Managing interest rate risk
• Overview of collateralised instruments
• Counterparty credit risk in derivatives
• Legal risk associated with derivatives
• Value at risk and Exposure at default
• Loss given default and probability of default
• Stress testing and liquidity risk
• Scenario modelling techniques
• Impact of international accounting standards, specifically IAS 39 and IFRS 7
• Asset recognition and derecognition rules